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Principles of Marketing 4.0

Jeff Tanner and Mary Anne Raymond

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PUBLISHED BY:

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CHAPTER 5

Market Segmenting, Targeting, and Positioning

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SEGMENTATION

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Marketing segments

Dividing or segmenting people and organizations into different groups of potential buyers with similar characteristics.

Targeting segments

Selecting market segments to pursue with plans.

Positioning

Creating a preferred position of the company’s products in the minds of consumers.

LEARNING OBJECTIVES

Distinguish between targeted marketing and mass marketing and explain what led to the rise of each.

Describe how targeted marketing can benefit firms.

Explain why companies differentiate among their customers.

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TARGETED MARKETING VERSUS MASS MARKETING

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BENEFITS OF SEGMENTING AND TARGETING MARKETS

Avoid head-on competition with other firms.

Develop new offerings.

Remarket older, less-profitable products.

Identify early adopters.

Focus on most profitable customers.

Retain “at-risk” customers.

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TARGETING MARKETS

Trend is toward more precise targeting of markets.

Companies are now using the Internet (Social Media) to track people’s Web browsing patterns and segment them into target groups.

Getting a read on potential target markets doesn’t necessarily have to involve technology.

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TARGETING A FIRM’S CURRENT CUSTOMERS

Finding and attracting new customers is more difficult than retaining current customers.

In addition to studying customers’ buying patterns, firms also try to get a better understanding of their customers by:

Surveying them

Hiring marketing research firms to do so

Utilizing loyalty programs

Many firms use Facebook to develop closer relationships with their customers.

Twitter is another way companies are keeping in touch with their customers and boosting their revenues.

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TARGETING A FIRM’S CURRENT CUSTOMERS

Some customers are highly profitable, others are not and others actually end up costing money to serve.

Some firms deliberately un-target unprofitable customers.

One-to-one marketing: This is a process that outlines the steps companies take to:

Target their best customers

Form close, personal relationships with them

Give them what they want

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ONE TO ONE MARKETING STEPS

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Establish short term measures to evaluate your efforts

How will the effort be measured?

Revenues, transactions, or other measures

Identify your customers

Gather all relevant information

Establish good contact information

Differentiate among your customers

Which customers are the most valuable?

Which customers are the least valuable?

Customize your products and marketing messages to meet their needs

Interact with your customers, targeting your best ones

KEY TAKEAWAYS

Choosing select groups of people to sell to is called target marketing, or differentiated marketing.

Mass marketing, or undifferentiated marketing, involves selling the same product to everyone.

The trend today is toward more precise, targeted marketing. Finding and attracting new customers is generally far more difficult than retaining one’s current customers, which is why organizations try to interact with and form relationships with their current customers.

The goal of firms is to do as much business with their best customers as possible. Forming close, personal relationships with customers and giving them exactly what they want is a process called one-to-one marketing. It is the opposite of mass marketing.

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LEARNING OBJECTIVES

Understand and outline the ways in which markets are segmented.

Explain why marketers use some segmentation bases versus others.

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SEGMENTATION BASES

These are the criteria used to classify and divide buyers into different groups.

These help a firm in getting a fuller picture of its customers and create real value for them.

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TYPES OF SEGMENTATION BASES

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behavioral

What benefits do customers want?

demographic

Profile of customers

geographic

Where are customers located?

psychographic

How do they use the product?

Age, race, ethnic backgrounds

How can they be reached?

SEGMENTATION BY BEHAVIOR

Benefits: segmenting buyers by the benefits that they seek from the product.

Usage: segmenting buyers by the frequency that they use/buy products.

Application: segmenting buyers by the way in which they use products.

Marketing people can tailor products to buyers for optimum results if they know:

The benefits that buyers seek

How often they purchase the product

The manner in which the product is used

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SEGMENTATION BY DEMOGRAPHICS

Demographics are used to segment markets because demographic information is publicly available in databases around the world.

Includes:

Age

Income

Gender

Family life cycle

Ethnicity

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SEGMENTATION BY GEOGRAPHY

Geographic segmentation divides buyers by where they are located.

Geocoding is the process of plotting geographic marketing information on a map.

Geodemographics (or neighborhood geography) combines both demographic and geographic information for marketing purposes.

Claritas’ PRIZM NE is a good source to see how this process works:

http://www.claritas.com/MyBestSegments/Default.jsp?ID=20

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SEGMENTATION BY GEOGRAPHY

City size and population density are also used for segmentation purposes.

Population density: the number of people per square mile.

Proximity marketing: an interesting new technology firms are using to segment and target buyers geographically within a few hundred feet of their businesses using wireless technology.

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SEGMENTATION BY PSYCHOGRAPHICS

Questions include:

Why consumers behave the way they do?

What is of high priority to them?

How they rank the importance of specific buying criteria?

Psychographic information is frequently gathered via extensive surveys that ask people about their:

Activities

Interests

Opinions

Attitudes

Values

Lifestyles

One of the most well-known psychographic surveys is VALS (which originally stood for “Values, Attitudes, and Lifestyles”) and was developed by a company called SRI International in the late 1980s.

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THE VALS TYPES

Innovators: successful, sophisticated, take-charge people

Thinkers: mature, satisfied, comfortable, well educated

Achievers: goal oriented, conservative, predictable, stable

Experiencers: young, enthusiastic, seek variety and excitement

Believers: conservative, conventional, believe in established codes

Strivers: trendy, fun loving, seek approval, job vs. career

Makers: practical, self sufficient, suspicious of large institutions

Survivors: few resources, concerned with safety, low motivation

What category do you fall into? Take the survey:

http://www.sric-bi.com/vals/surveynew.shtml

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SEGMENTATION IN B2B MARKETS

There are fewer behavioral and needs-based segments in B2B markets than in business-to-consumer (B2C) markets for two reasons:

Business markets are made up of a few hundred customers whereas consumer markets can be made up of hundreds of thousands of customers.

Businesses aren’t as fickle as consumers.

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SEGMENTATION IN B2B MARKETS

The behavioral segments in B2B markets include the following:

A price-focused segment

A quality and brand-focused segment

A service-focused segment

A partnership-focused segment

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KEY TAKEAWAYS

Segmentation bases are criteria used to classify buyers. The main types of buyer characteristics used to segment consumer markets are behavioral, demographic, geographic, and psychographic.

Behavioral segmentation divides people and organization into groups according to how they behave with or toward products.

Segmenting buyers by personal characteristics such as their age, income, ethnicity, family size, and so forth is called demographic segmentation.

Geographic segmentation involves segmenting buyers based on where they live.

Psychographic segmentation seeks to differentiate buyers based on their activities, interests, opinions, attitudes, values, and lifestyles.

Oftentimes a firm uses multiple bases to get a fuller picture of its customers and create value for them. Marketing professionals develop consumer insight when they gather both quantitative and qualitative information about their customers.

Many of the same bases used to segment consumer markets are used to segment business-to-business (B2B) markets. However, there are generally fewer behavioral-based segments in B2B markets.

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LEARNING OBJECTIVES

Describe the factors that make some markets more attractive targets than others.

Describe the different market-segmenting strategies companies pursue and why.

Outline the market-segmentation strategies used in global markets.

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TARGETING CRITERIA

Can the market be profitable?

Is it a growing market?

Is there room for a new competitor?

Is the market accessible?

Are resources available to serve this market?

What is the fit with present business mission and objectives?

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CHOOSING THE NUMBER OF MARKETS TO TARGET

Henry Ford proved that mass marketing can work—at least for a while.

Mass marketing is efficient because you don’t have to tailor any part of the offering for different groups of consumers, which is more work and costs more money.

Firms that mass market are vulnerable to competition.

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MULTISEGMENT MARKETING

It can allow firms to respond to demographic changes and other trends in markets.

It can also help companies weather an economic downturn by allowing customers to trade up or down among brands and products.

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CONCENTRATED MARKETING

It involves targeting a very select group of customers.

It can be a risky strategy because companies really do have all their eggs in one basket.

Niche marketing: It involves targeting an even more select group of consumers.

Microtargeting: a new effort to isolate markets and target them.

It is also known as narrowcasting.

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TARGETING STRATEGIES USED IN GLOBAL MARKETS

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TARGETING GLOBAL MARKETS

Sell the same product across the entire world.

Tailor their offerings to some extent to meet the needs of different buyers around the world.

Acquire foreign companies or companies with large market shares.

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KEY TAKEAWAYS

A market worth targeting has the following characteristics:

It’s sizeable enough to be profitable, given your operating costs

it’s growing

it’s not already swamped by competitors, or you have found a way to stand out in the crowd

it’s accessible, or you can find a way to reach it

you have the resources to compete in it

it “fits in” with your firm’s mission and objectives.

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KEY TAKEAWAYS

Most firms tailor their offerings in one way or another to meet the needs of different segments of customers.

A multisegment marketing strategy can allow a company to respond to demographic and other changes in markets, including economic downturns.

Concentrated marketing involves targeting a very select group of customers.

Niche marketing involves targeting an even more select group of consumers.

Microtargeting, or narrowcasting, is a new, effort to “super target” consumers by gathering all kinds of data available on people—everything from their tax and phone records to the catalogs they receive.

Firms that compete in the global marketplace can use any combination of these segmenting strategies or none at all. Sellers are increasingly targeting consumers in China, Russia, India, and Brazil because of their fast-growing middle classes.

Firms are creating low-cost products to capture large markets in developing countries such as these and then selling the products in developed countries. Other strategies for targeting markets abroad include acquiring foreign companies or forming partnerships with them.

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LEARNING OBJECTIVES

Explain why positioning is an important element when it comes to targeting consumers.

Describe how a product can be positioned and mapped.

Explain what repositioning is designed to do.

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POSITIONING

Companies want to have a distinctive image and offering that stands out from the competition in the minds of consumers.

Perceptual map: a two-dimensional graph that visually shows where your product stands relative to your competitors, based on criteria important to buyers.

HOW CONSUMERS PERCEIVE A PRODUCT RELATIVE TO THE COMPETITION

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A PERCEPTUAL MAP

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POSITIONING

Tagline: a catchphrase designed to sum up the essence of a product.

Repositioning: an effort to “move” a product to a different place in the minds of consumers.

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KEY TAKEAWAYS

If a product faces competition, its producer will need to think about how to “position” it in the marketplace relative to competing products.

Positioning is how consumers view a product relative to the competition.

A perceptual map is a two-dimensional graph that visually shows where a product stands, or should stand, relative to its competitors, based on criteria important to buyers.

Sometimes firms find it advantageous to reposition their products. Repositioning is an effort to “move” a product to a different place in the minds of consumers.